Scientology Paid Government $12.5 Million Under Terms Of Agreement

NEW YORK TIMES
December 31, 1997

By DOUGLAS FRANTZ

The Church of Scientology paid $12.5 million to the federal government
in 1993 as part of a settlement with the Internal Revenue Service that
granted tax-exempt status to the church and ended a long and bitter
battle with the agency.

The payment was part of a landmark agreement, whose details had been
kept secret until Tuesday, that saved the church tens of millions of
dollars in taxes and provided Scientology with an invaluable
public-relations tool in its worldwide campaign for acceptance.

In addition to the $12.5 million payment, the agreement required the
church to create an internal oversight committee of high-level church
officials to monitor its compliance with tax laws and report annually
to the tax agency for three years, according to a copy of the 76-page
settlement agreement.

As part of the settlement, the church agreed to drop its lawsuits
against the Internal Revenue Service and its officials and to stop
helping church members who, along with the church itself, had brought
2,200 lawsuits against the agency and its officials over the years.

In exchange, the tax agency stopped its audits of 13 major Scientology
organizations, dismissed tax penalties and liens against some church
organizations and granted tax-exempt status to 114 Scientology-related
entities in the United States.

The outline of the agreement was announced by the tax agency in
October 1993. But the details had been kept secret as private taxpayer
information. Those details were first disclosed Tuesday by The Wall
Street Journal and copies of the agreement were subsequently posted on
at least two Internet sites, including one operated by The Journal.

The agreement, which was signed on Oct. 1, 1993, represented a sharp
reversal for the tax agency. For 25 years, the agency had refused to
provide Scientology with the blanket tax exemption accorded bona fide
churches.

The agency had contended that Scientology operated as a for-profit
business that enriched some church officials. In response, the church
had mounted an aggressive campaign against the revenue service and
individual agency officials.

In a campaign first described last March in The New York Times,
private detectives dug into the backgrounds of agency personnel and
the church helped finance an organization of agency whistle-blowers.

According to the settlement document, two church leaders, David
Miscavige and Mark Rathbun, approached the agency in October 1991
seeking to negotiate a resolution of the longstanding dispute. Fred
Goldberg Jr., the commissioner of internal revenue at the time, met
with the church officials and indicated that he, too, wanted to
resolve the outstanding issues, the document said.

Over the next two years, the agency conducted an exhaustive inquiry
into the finances and operations of the church. The result was the
final agreement reached in October 1993.

The Church of Scientology was founded in the 1950s by L. Ron Hubbard,
a science-fiction writer who died in 1986. Its adherents believe that
Scientology's self-help techniques and counseling sessions, known as
auditing, can help people live more productive and satisfying lives.
But the cost of the auditing sessions, which can run into thousands of
dollars an hour, has drawn criticism as have the church's aggressive
tactics toward its critics.

The newly disclosed details of the agreement show that the church
agreed to more federal government intrusion than perhaps any religious
organization has ever allowed.

Along with creating the oversight committee, called the Church Tax
Compliance Committee, Scientology agreed that the tax agency could
impose penalties of as much as $50 million on specific church
organizations if they repeatedly spent money on noncharitable purposes
from the time of the agreement through the end of 1999.

Rathbun, a senior Scientology official and member of the oversight
committee, said the church was willing to accept the monitoring
because it had nothing to hide.

"When you are as pure as the driven snow, it doesn't mean anything,"
Rathbun said of the oversight. "We're doing what we have always done,
and that is operating for religious and charitable purposes."

Frank Keith, a spokesman for the IRS, said he could not comment on any
details of the settlement, because of taxpayer privacy law. He said
only that the agency determined after a long inquiry that Scientology
was entitled to its tax exemption. The settlement document does not
disclose how much in back taxes the IRS had sought from the various
Scientology entities under investigation at the time of the agreement.

But Miscavige, the church's highest ecclesiastical leader, told a
gathering of members in 1993 that the tax bill could have been as much
as $1 billion. Along with dismissing the audits and erasing any
back-tax liability, the IRS reversed an earlier ruling and said that
Scientologists could deduct from the taxes the money that they paid to
the church for auditing sessions.

In recent years, the church has employed the IRS decision both to
boost contributions from its members and counter criticism from
foreign governments about its practices.

It is not known how much the IRS has spent investigating Scientology
or defending itself against the hundreds of lawsuits filed by the
church and its members.